Mortgage Payment Tips

Whether you’re buying your first home, or you’re downsizing like many of my clients who are approaching retirement and don’t need the space, the first thing to do is figure out how much you can afford. As a general rule of thumb, you don’t want to pay more than 30% of your pre-tax income on housing.

Build a Healthy Down Payment – This is an easy one if you’re older and downsizing your home, because you may make enough from selling your larger home to pay cash for your new one. However, if you’re younger and buying your first home, you’ll need to work to build your down payment. You should plan to have at least 10% at the time of closing. If you can afford 20%, you won’t have to pay private mortgage insurance, which costs about a half-percent to one percent of the loan each year.

Make Biweekly Payments – Most mortgages are set up so you pay them once a month. But, instead, try making half of your payment every-other week. That adds up to 26 half-payments, or 13 full payments, per year. By making that extra payment each year, you can take eight years off a 30-year mortgage, depending on the interest rate.

Refinance to a 15-Year Mortgage – By refinancing from a 30-year mortgage to a 15-year mortgage, you can cut down on the interest you’ll pay. If your interest rate is already low and you don’t think it’s worth the closing costs of refinancing, you can put extra money in each payment as if you have a 15-year mortgage.

A mortgage is considered a “good” debt because it grows in value and has a low interest rate. If you have “bad” debt, like credit card debt, you’ll want to make paying that off your top priority. Put extra payments and “found” money, like a bonus at work, toward eliminating your “bad” debt first, and then work on paying off your “good” debt.